One of the most complex issues to deal with in a small company is a dispute between directors and shareholders. The fallout has the potential to be devastating to a small company – both in terms of time wasted in dealing with broken-down relationships, and the costs involved as staff move on due to lack of direction or opposing direction from the people at the top.
Regardless of the causes of dissatisfaction between shareholders and directors, it is desirable for the good of the business to reach a satisfactory solution using the options available, which are primarily:
- Buyouts, resignation, and selling of shares (shareholders only)
- Voluntary administration
- Going to court
An experienced shareholder dispute lawyer will be able to advise you on the best solutions for your particular circumstances.
Sitting across the table and negotiating with another party is a skill at which most business professionals are very adept. However, when matters are contentious between the directors or shareholders of the business, it is not so simple. Trying to do this without the help of a shareholder dispute lawyer could exacerbate the situation, particularly if working relationships are already fraught and emotions are running high. An experienced business lawyer can help facilitate conversations and mediations towards reaching an agreement that is beneficial to both parties.
Buyouts and sale of shares
These options are only available for shareholders and even then, it may not be desirable if the business has prospects of further growth and development in the future. However, in certain circumstances where a dispute cannot be resolved, the shareholder may get to a point where they feel the best option is walking away and selling their shares in the business.
The best way to go about it would be to take legal advice from a business partnership lawyer, get the shares valued, and have your lawyer liaise with other business partners to either sell out or use the valuation to buy them out.
We would always recommend that the business puts a shareholders agreement in place as soon as possible after the business commences operation, as this provides structures with which the parties must comply, which are designed to assist before things get to the level of a dispute. Talking to a business partnership lawyer, and getting them to set out an agreement which incorporates measures requiring professional mediation in the event of a dispute, is a more cost-effective approach.
In some circumstances the shareholders can resolve that the company is placed into administration. In this process, the company is placed in the hands of an independent administrator who assesses the options available and then decides on the best outcome for all parties, including the creditors. The administrator effectively takes over the duties of running the company from the directors and after a period of assessment, can decide to place the directors back in control, implement a scheme of company arrangement, or put the company into liquidation.
This is rarely an attractive option because, firstly, it is expensive and secondly, the administrator must have regard to the interests of creditors, whose interests do not always align with the owners of the business. It is important to consult with a shareholder dispute lawyer as to the appropriateness of this solution.
Getting the courts involved
Sadly, this is where a number of shareholder and director disputes will end up if negotiations and other alternative dispute resolution efforts fail. The parties can bring their case to court where a judge will decide on the appropriate legal remedy.
One of these legal outcomes could be a court-appointed winding up on just and equitable grounds. Similarly to the VA process described above, this option is expensive and often not attractive to the members of the company. However, it may be the only option if the relationship between the parties has completely broken down.
The court also has the power to make orders regarding the conduct of the business’ affairs if the company has undertaken actions contrary to the interests of members or been oppressive, discriminatory, or prejudicial against members. Behaviour that is seen as oppressive conduct can include misuse of company funds, denying shareholders access to information about the business affairs, or not allowing other directors to undertake their required duties.
Consult a business lawyer
All business dealings bring with them some degree of complexity, and this is exacerbated when parties don’t fully appreciate their rights and the relevant legal considerations. As such it is always best to obtain legal advice from a business lawyer to understand one’s position and legal avenues as either a shareholder or director.
At Nevett Ford, our corporate and business team is well-equipped to provide advice in your best interests regarding any partnership agreements or company disputes. Contact us to find out what we can do for you today.